Weekly Digest – The U.K. General Election and the FOMC interest rate decision, are the key events to follow

Arguments regarding the advantages of using technical analysis to make forex trading decisions, rather than using fundamental analysis, have raged across the internet (on trading forums and social media) since internet-based retail trading was born, at approximately the turn of the century. Many successful Traders and Investors on the ZuluTrade platform, will testify that you need to combine both forms of analytical skills, in order to bank profits as a copy-trader or Investor. This advice is undeniably correct, but occasionally you receive a perfect, text-book, illustration and example, of why we need to pay attention to the economic calendar and make trading decisions based solely on economic events and the published data. 

To ascertain which ZuluTrade Traders in our community will use fundamental analysis to their advantage, it’s worth keeping informed regarding the leaders on the leader board, who identify fundamental analysis as essential to their profitability. You can also access the Social Charts section on which many Traders and Investors openly discuss their trading ideas with the community.

CopyTrade Economic News at ZuluTrade

Canadian dollar slumps due to employment/unemployment data missing the forecasts 

On Friday December 6th, the forex market experienced a sudden slump in the value of the Canadian dollar (CAD) across the board, versus its main peers. The reason for the sudden sell-off from 13:30pm on Friday, related to Canada’s employment and unemployment data missing the forecasts. Reuters news agency had forecast that the Canadian economy added 10k jobs in November, instead a net loss of -71k jobs was recorded. The unemployment rate consequently spiked to 5.9% from 5.5%. The figures added to the belief amongst many economists and analysts, that Canada’s economy might have slowed sharply and could be generating recessionary signals. 

U.S. dollar registers significant gains versus its Canadian counterpart 

As can be clearly seen, USD/CAD spiked upwards as the data was published, price surged through the third level of resistance, R3, ending the day up 0.56% while recovering a significant proportion of the losses registered earlier in the week. The fall in the value of CAD versus USD was amplified due to the latest NFP jobs data from the USA for November coming in at 266k, above the prediction of 186k and recording a close on 100k rise from October’s figure. The FX markets reacted positively to the unexpected jobs surge in the USA, because it was recorded before any Xmas seasonal factors are taken into consideration. The NFP data suggests the USA economy is remaining strong, despite the impact the Chinese tariffs have had on both imports and exports and subsequent manufacturing, during 2019. 

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The U.S. dollar recorded gains versus several of its peers during the New York session after the bullish NFP data was published, EUR/USD closed the day out down -0.40% and GBP/USD closed the day out down -0.18%. U.S. equity indices also printed significant gains on the day due to the unexpected NFP data, the DJIA closed up 1.22% and the NASDAQ 100 up 1.00%. 

CopyTrade Economic News at ZuluTrade

Sterling continues its General Election gains 

The U.K. pound registered considerable gains versus many of its main peer currencies during last week’s trading sessions. Naturally, as the December 12th Election Day date has neared, GBP has become highly sensitive to any developing news. The FX markets for GBP appear to be reacting to any significant change in polling predictions. As the polls have looked favorable towards the current Tory party, the value of sterling (across the board) has risen versus its peers. 

Despite the fact that a Tory majority government will ensure Brexit happens, a process that could harm the U.K. economy, markets dislike change and uncertainty, therefore, a continuation of the current party remaining in power is seen as the least, worst, option. During last week’s trading, GBP/USD reached a high not seen since early May and as illustrated here, the major pair has experienced significant bullish momentum during the month of December, as various opinion polls have consistently predicted a Tory, General Election, victory. 

Bollinger Bands, an excellent indication of volatility when used on daily time-frames 

Developed by the highly regarded analyst John Bollinger, Bollinger Bands are volatility bands which are usually placed above and below a moving average. Volatility is based on the standard deviation, which will change when the volatility of a security’s value either increases, or decreases. The bands will automatically widen when volatility increases and then narrow when volatility decreases. A more comprehensive description of their use can be obtained here 

As can be seen in this chart of GBP/USD, illustrated on a daily time-frame, the BB widened as bullish momentum increased in GPB/USD during the week. The major FX pair finished the week up 1.66% and is up 2.51% monthly, trading above all the main daily moving averages. 

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Traders and Investor who specialise in trading sterling, in particular GBP/USD and EUR/GBP, should ensure they remain hyper vigilant to any changing news regarding the U.K. General Election. Polls, interviews, security incidents, or major gaffs, committed by either leader of the Tory or Labour Party, could result in a sudden surge in bullishness, or reversal in the direction of sterling, versus its peers. 

CopyTrade Economic News at ZuluTrade

BIS warns of a return to volatility in the forex markets 

The overall subject of volatility has been covered by the Bank for International Settlements, lately. BIS delivered warnings last week, regarding the dangers of volatility returning to the FX markets. 

“An abundance of trading venues means that investors and dealers are spreading their capital more thinly than before, fragmenting liquidity across multiple platforms. That raises the risk of liquidity drying up at some venues during periods of market turmoil”, the Bank for International Settlements warns. 

Of course, in relation to retail Traders and Investors on the ZuluTrade platform, increasing volatility represents considerable trading opportunities. However, this article is quoting the opinion of BIS, who are the ultimate bank for forex trading governance globally, therefore, it’s worth reading their comments, if you can take the time out. 

High impact economic calendar events and data releases, which could impact on the FX markets 

Monday December 9th witnesses the publication of housing data for the Canadian economy, both housing starts and permits are forecast to reveal an increase, when the figures are broadcast at 13:15pm U.K. time. Analysts will carefully monitor the data based on the slump the Canadian dollar suffered last Friday, after the country’s employment numbers fell sharply. 

At 22:05pm the Australian central bank governor will deliver a speech in Sydney. Traders and analysts will carefully monitor the speech for any clues regarding a change to the bank’s current monetary policy, from its current dovish outlook. Due to the timing of the announcement during a time of low liquidity, the value of AUD could oscillate in a wide trading range, depending on the content of the speech. 

Tuesday December 10th’s high impact events begins with the release of the latest U.K. GDP growth figures at 9:30am. October is forecast to come in at 0.10% up from -0.1%, with the past three month figure coming in at 0.00%. Construction, manufacturing and industrial production are predicted to remain in recession. The trade balance is forecast to reveal an improvement. The aforementioned metrics could provide a timely boost for the current, ruling, Tory party, as the General Election nears. At 10:00am various ZEW surveys for Germany and the E.Z. are published, which are expected to reveal improvements. 

Wednesday December 11th begins with a half-yearly fiscal statement from the New Zealand government. Published at 0:00am the data could affect the value of the kiwi dollar, depending on the content. Due to the time of release, NZD could experience changes in value, as liquidity may be compromised. 

At 13:30pm attention will turn to the USA economy as the latest inflation figures are published. CPI is predicted to come in at 2.0% for November year on year, up from 1.8%. A result which could positively impact on the value of USD versus its peers. Average earnings data for USA workers will also be closely watched, as it can reveal the health of the USA consumers’ finances and their ability to spend. 

CopyTrade Economic News at ZuluTrade

At 19:00pm market focus will be on the FOMC as the interest rate decision is broadcast. The widely held view, after Reuters and Bloomberg have polled their panel of economists, is for a hold of the rate at 1.75% for the upper bound rate. The latest monthly budget deficit is forecast to come in at -$207b for November, a significant increase from -$135b. However, this considerable deterioration isn’t expected to impact on the FX markets, or the equity markets, given the overall risk on sentiment, which is currently in existence in USA investment markets. Jerome Powell, the Fed chair, will hold a press conference at 19:30pm, the market for USD could move significantly, depending on the content of his speech. 

Thursday December 12th will centre around the value of sterling and the U.K. General Election. The reaction of GBP versus its peers may be fairly benign during the London-European and New York sessions, as market participants will eagerly await the exit poll at 10:00pm. This polling is generally accurate, and the result will undoubtedly and immediately, impact on the value of GBP versus all its peers.  

At 8:30am the Swiss national bank, SNB, will reveal its interest rate decision, which could affect the value of the Swiss franc. At 12:45pm the ECB are forecast to announce they’ve left the deposit interest rate at -0.50% and marginal rate at 0.25%, with the key lending rate at 0.00%. At 13:30pm Christine Lagarde, the newly appointed ECB president, will hold a press conference justifying the decision. At 17:30pm the Canadian central bank Governor Poloz, will deliver a monetary policy statement/speech in Toronto, an event which could cause the value of the Canadian dollar to fluctuate. 

Late evening a series of data releases relevant to the Japanese economy will be published, metrics which could impact on the value of JPY versus its peers, particularly during the Asian session, when liquidity is traditionally less than during other Western Hemisphere sessions. 

Friday December 13th will witness the FX markets opening in Europe to the likely result of the U.K. General Election, naturally, the result could have a dramatic impact on the value of GBP. At 13:30pm a raft of data for the USA economy will be published, retail sales, import and export prices will be scrutinised by analysts for signs of improvement in the USA economy, despite the Chinese tariffs and trade disputes, which have occurred during 2019.

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Copy Trading Platform and do not constitute an offer or invitation to anyone to invest or trade.